Reasoning with the Taxman

blitt bob knakal 7 Reasoning with the TaxmanI love New York City. New Yorkers are tough, resilient, irrepressible, imaginative, inventive and, for the most part, optimistic. New Yorkers have a spirit that is difficult to suppress. From what I have read lately, it seems America may need a dose of this spirit, given the present thoughts that are seeping into the nation’s collective psyche. 

Last week, we were told that our gross domestic product grew by 3.5 percent in the third quarter of 2009. Few people were encouraged by these numbers because people don’t have a great deal of faith in them. It is quite clear that more than two-thirds of this increase consisted of activity from government programs and government spending. Few believe the economy is currently strong enough to grow independently of massive government support.

At the moment, the United States has several concerns, including unprecedented government spending, massive deficits, foreign ownership of our debt, world terrorism, two wars, potential flu epidemics and who does or does not have nuclear weapons. But these are not our biggest threats: According to a new business survey, our biggest long-term threat is that people are increasingly becoming disheartened. They are concerned that our economic condition is reaching a critical point that is afflicting, most broadly and deeply, those members of the American leadership class who are not in Washington but are at the helm of businesses across the country. Over 90 percent of businesspeople believe their taxes will go up substantially in the near term. This includes federal, state and local taxes. They also believe they will be worse off in 2010 than they were in 2009.

Many Americans, including those who have experience on the ground in how the country works, cannot figure a way out of our current predicament. This is something new in our political history, and many are not acknowledging that, increasingly, Americans are starting to think the problems we are facing cannot be solved.

Part of the reason for this is the immense magnitude of the spending and debt. There are no clear solutions or strategies to conclude the wars we are participating in. But more importantly, our government, from the White House through Congress and most state and local governments, is demonstrating that it’s having trouble finding solutions. Our leaders are simply not offering inventive new paths, only continuing old paths of spending more, regulating more and taxing more. In the long term, few people in the business world believe this is a winning formula.

 

RELENTLESS SPENDING IS SOMETHING that politicians cannot seem to avoid, and New York has suffered because of it. Our new state budget shows a projected deficit of $17.7 billion, and that estimate did not take into account the greatly reduced revenue that is currently anticipated. Budget gaps get closed by cutting spending, increasing taxes or a combination of both. The path of least resistance for politicians is to raise taxes, particularly on the most productive taxpayers, who represent the smallest percentage of the voter base.